topheadline

Price Action Mixed Amid Fed 50bp Rate Cut (Euro Open)

Thursday, 30 October 2008 02:38:12 GMT  |  Luis Gil, DailyFX.com

American and Asian trading saw the Euro sell off against the U.S. Dollar in the minutes after the Fed’s expected 50bp rate cut. Both the Euro and Pound closed the day up and are currently trading bullish. Furthermore Reserve Bank of Australia Deputy Governor Ric Battellion stated that the bank would have difficulty further cutting rates as inflation may become of paramount concern.

Key Overnight Developments

• Federal Reserve Cuts Rate by 50bp
• RBA Deputy Governor Hints at Rate Cut Halt


Critical Levels



In the 20 minutes following the Fed’s 50bp rate cut, the Euro plummeted 115 pips as many had been pricing in a cut of 75bp. Nonetheless the 15-nation currency quickly recovered its losses to end the trading day at 1.2959. Sterling sold off a bit less, 105 pips in the same period following the announcement before ending the day up at 1.6368.


Asia Session Highlights



New Zealand Building Permits rose sharply, by 8.4%, after five consecutive months of shrinking applications. With interest rates falling sharply in the island economy, it is seen that the cost of financing new edifices will probably be in significant decline. 366 new apartment building permits were filed in September, three times that of the August figure.

In a speech given today to a National Bankruptcy Congress in Sydney, Reserve Bank of Australia Deputy Governor Ric Battellino stated that inflation may impair the central bank’s ability to continue cutting rates. An “inflation overhang,” as he put it, would only be further stoked by decreasing costs of credit. He followed up his comment by also saying that they are aiming at once again fighting off a global recession as they did in 2001. “That is certainly what we’re aiming for” he said amid uncertainty as to Australia would be able to pull an encore performance. Nevertheless, Australia’s income growth will probably be subdued, especially as China begins demanding less of the South Pacific’s commodities. It’s Conference Board Leading Index rose by 0.4% in August after seeing no gains in July.


Euro Session: What to Expect



Germany’s Unemployment Rate as measured by the International Labor Organization is expected to have remained flat through September. But as Europe’s largest economy saw its Q2 GDP shrink by 0.5%, the unemployment rate may actually rise. Such a move would be the first increase in the metric in two years as global demand for goods saw German exports decline in July and August. French Producer Prices are expected have shrunk in for the first time in nearly two years in September as gas and oil prices begin to price their way into raw materials. August saw the energy products portion of the metric plummet 3.1%.

Bloomberg’s France Retail Purchasing Manager Index is expected to fell but may actually remain nearly flat. September saw consumer spending in the country actually rise, despite forecasts calling for a -0.2% growth rate in the metric. Italy, on the other hand, may be a different story. Retail sales in the country plummeted much more than had been expected. Germany

Thursday will also see a slew of European confidence indicators, all of which are expected to continue falling. The benchmark ZEW sentiment indicator for Germany fell 12 points alone. Bank of France’ Business Sentiment index also fell significantly. As such, it will be of little surprise that Thursday’s release will post to the downside.


To contact Luis regarding this or other articles he has authored, please email him at lgil at fxcm dot com.

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars